Morningstar DBRS Confirms All Classes of GS Mortgage Securities Corporation Trust 2018-HULA

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-HULA issued by GS Mortgage Securities Corporation Trust 2018-HULA as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (high) (sf)
-- Class F at BB (high) (sf)
-- Class G at B (high) (sf)

All trends are Stable. The credit rating confirmations reflect the transaction's stable performance in the last year compared with the net cash flow (NCF) that Morningstar DBRS used in its analysis at the last annual review in July 2023, when it upgraded its credit ratings on the Class E, Class F, and Class G certificates by two notches each.

The underlying loan is secured by the Four Seasons Resort Hualalai, a luxury hotel and resort located on Hawaii's Big Island. The collateral consists of a 243-key resort spread across 39 acres and the private membership Hual¿lai Club. At issuance, the collateral also included 250 acres of a residential master-planned community, a portion of which was sold and released as discussed below. A $100 million renovation of the property was finalized in October 2021, with all rooms renovated and amenities upgraded across the property. The loan had an initial two-year term with five one-year extension options.

The trust had an initial balance of $350.0 million at issuance, with a $100.0 million B Note held outside the trust. As of the July 2024 reporting, the trust had an outstanding balance of $306.7 million given a principal paydown in the last year and a previous paydown resulting from the release of land for residential development. With the exception of the residential land, the collateral is subject to a ground lease. The underlying land is owned by the Trustees of the Estate of Bernice Pauahi Bishop. The ground lease expires in December 2061 with no renewal options. The borrower pays minimum rent of $4.2 million and a percentage of revenue through December 2026. The July 2024 reporting showed a maturity date in July 2025, suggesting that the borrower's request to exercise the fifth and final extension option that was previously reported was approved and finalized. To exercise the final option, the loan was not subject to any performance-based criteria; however, the borrower was required to provide a replacement interest rate cap agreement for the extension period. In addition, 25 basis points will be added to the spread as was the case with the fourth option.

According to the financials for the T-12 period ended March 31, 2024, the loan reported a NCF of $39.7 million, down from the previous figure of $47.3 million for the T-12 period ended March 31, 2023, and up by about $2.0 million from the YE2023 figure of $37.9 million and the stressed Morningstar DBRS NCF of $37.8 million in July 2023. Post-pandemic cash flows peaked at a YE2022 figure of $53.2 million, with cash flow declines since that time resulting from a combination of falling revenues and increased expenses. As of the April 2024 STR report, the subject reported T-12 occupancy, average daily rate (ADR), and revenue per available room (RevPAR) figures of 70.2%, $1,800, and $1,264, respectively, with a RevPAR penetration figure of 270.5%. RevPAR is down 6.5% from the prior T-12 period ended April 30, 2023, with both ADR and occupancy metrics contributing to the decline. However, RevPAR for the T-3 period ended April 30, 2023, improved by 5.8% from the prior year, suggesting that performance is improving.

Morningstar DBRS made positive qualitative adjustments totaling 10% to the final loan-to-value (LTV)-sizing benchmarks for this credit rating analysis to account for cash flow volatility, property quality, and market fundamentals.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

Class X-NCP is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

Other methodologies referenced in this transaction are listed at the end of this press release.

The Morningstar DBRS ratings assigned to Classes D and G are lower than the results suggested by the LTV sizing benchmarks by three or more notches. This variance is warranted, given the recent cash flow volatility for the underlying property as well as the near-term maturity for the underlying loan.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- North American Single-Asset/Single-Borrower Ratings Methodology (July 11, 2024), https://dbrs.morningstar.com/research/436004
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].